“Nobody expected May’s Brexit deal to secure a majority. Nevertheless, the scale of the defeat—the worst for a British government in modern history—was startling…. It’s very unlikely the deal can be rescued.” In fact, investors seem to be signaling that “reversing the Brexit decision” is now more likely than “a chaotic exit…. The pound jumped 1.4 percent against the U.S. dollar immediately after the result was announced on Tuesday.”

“Turkey makes up less than 1% of the emerging markets index, but its small size hasn’t kept it from creating big ripples during the dog days of summer. Most investors are steering clear of Turkey, as it grapples with the fallout from years of binging on dollar-denominated debt, but the bigger question is who else could get caught up in Turkey’s crisis.”

“Hedge funds and speculators spent the first four months of the year betting heavily against the dollar. They’re now running for the hills. The increasingly rapid rate at which they’re slashing their short dollar positions is creating a vicious cycle.” Moreover, it looks like “this ‘pain trade’ has further to run because, historically, the overall short position remains large.”

“The dollar-euro exchange rate is the most important price in the world…. How so? These are two surpassingly large economic areas, and they trade and invest more than enough with each other—such that each imports the other’s entire relative price structure…. Change that exchange rate in a big way—a fifth is plenty big—and all sorts of new decisions will come in terms of where one plans to invest, produce, and sell.”

“The last time the Philippine peso neared 50 to the dollar, the global financial system was melting down and the central bank raised interest rates to defend it. This time, it has been driven by the president cursing his trading partners.”

The Brexit “reality is that Britain has a lot to lose in leaving the union, and that putting a two-year limit on the negotiations further weakens an already shaky hand.” Following Prime Minister May’s announcement of a timetable for withdrawal, “the prompt plunge of the British currency to a 31-year low against the dollar provided a far louder response than the misguided cheers of her fellow Conservative Party members.”

“Since the 15th century the world has had six unofficial reserve currencies, starting with the Portuguese real. On average they have maintained their leading position for 94 years. The dollar succeeded the British pound 96 years ago, and it has no serious rival in sight.” Today, nearly 90% of global trades involve dollars and, worldwide, nearly two thirds of foreign currency reserves are held in dollars.

“It is now a week since voters narrowly opted for Brexit, and the country has seldom looked so wildly off the rails. The prime minister has handed in his notice. The leader of the opposition is struggling to survive a coup. The pound hit a 31-year low against the dollar and banks lost a third of their value, before stabilising. Meanwhile there is talk in Scotland and Northern Ireland of secession.”

“Even with the dollar’s rally since 2014, U.S. manufacturing is benefiting from the world’s strongest rate of productivity, a flexible labor market, cheap energy and from having a big domestic market.” The lingering belief that it’s radically cheaper to move production to China is a misconception. “Labor costs adjusted for productivity in China are only 4 percent cheaper than in the U.S.”

Not everyone is in line with the consensus view that the yen will weaken to 126 per dollar by the end of 2016. Among the most bullish, Morgan Stanley “expects Japan’s currency to strengthen to 115 against the greenback.” Factors behind this forecast include the historic weakness of the yen, the need for Japanese pension funds to repatriate money, improvement in Japan’s economy and a general overestimation of the BOJ’s commitment to monetary easing.